On Your Mark...Get Set...
As soon as Lyndon Johnson signed Medicare into law 40 years ago, his administration went into overdrive to sign people up. The effort to urge everyone 65 and older to buy into the voluntary part of the program—insurance for doctors' services at $3 a month—was so extensive that "we even had the Forestry Service looking for hermits in the woods," says Robert M. Ball, then Social Security commissioner, who implemented Medicare.
Within a year, 95 percent of older Americans had enrolled.
Another massive outreach campaign is now under way, as President Bush and his top officials tour the country to talk up the new Medicare coverage for prescription drugs that starts Jan. 1.
They describe the program—the biggest expansion of benefits since Medicare began—as "a good deal" and predict that next year about 30 million of today's 42 million beneficiaries will receive drugs either from a Medicare drug plan or from employer coverage subsidized by Medicare.
But today's Medicare administrators may face a steeper uphill struggle with enrollment than those in 1965. Back then, "most people were very anxious to sign up," Ball recalls, because the vast majority of older Americans had no health insurance at all.
Recent opinion polls show that enthusiasm for the new drug benefit is steadily gaining ground among Medicare beneficiaries. But many say they don't understand it and are wary of signing up.
That's a normal reaction at this stage because the program is big and complex—and new. "The major issue here is the newness," says Robert D. Reischauer, president of the Urban Institute in Washington. "So there isn't any word- of-mouth information" as yet among neighbors and friends.
That could change over the next two months. Beneficiaries will be bombarded with detailed information on how the program will work as Nov. 15—the first day of the six-month initial enrollment period—draws near. They will also be offered a great deal of help in making decisions.
But there is one big difference between the rollout of Medicare in 1965 and the drug benefit today that experts say will complicate the enrollment process. Part B, the voluntary program for doctors' and other outpatient services, was relatively simple to understand. It was the same deal for everyone—a $3 premium and $50 deductible plus a payment of 20 percent of each bill, with Medicare paying the rest.
In contrast, anyone who wants drug coverage through the new benefit (known as Part D) must join a Medicare-approved private insurance drug plan. At least two plans will be available to everyone, with many more in some areas. Plans may charge different premiums and copayments, as long as the overall value is at least as good as the standard package defined by Congress.
Plans will have to cover at least two drugs in each class of medication used to treat the same condition, but they won't cover all drugs, and they'll be allowed to change the ones they do cover at any time. People who sign up will be able to switch plans once a year.
Supporters of the system say it will give enrollees a variety of choices so that they can potentially customize drug coverage to their own needs. Critics contend that too much choice will confuse people, especially older beneficiaries who are unfamiliar with the process of comparing health plans.
Medicare will announce the plans it has approved in mid-September. From mid-October beneficiaries will be able to compare the details of plans available in their area on Medicare's website or through its telephone hotline.
In addition, many organizations, including AARP, are gearing up to help people understand the new drug coverage and make decisions. Hundreds of questions are pouring into the AARP Bulletin, and many will be answered in the November issue. Among these, a recurring theme is, How did the drug benefit come to be designed this way?
Why isn't the drug benefit a simple add-on to Medicare?
Like the legislation that established Medicare itself in July 1965, the drug benefit cleared Congress in November 2003 only after years of stormy debate.
Previous attempts to add drug coverage to the program (including one signed into law by Ronald Reagan in 1988 but quickly repealed) did propose a simple add-on to Part B, with the same 20/80 percent cost-sharing split. But in the mid-1990s a new philosophy emerged.
Many members of Congress—mainly but not exclusively Republicans—saw private plans as a solution to spiraling costs in Medicare's traditional fee-for-service program.
"What happened was that prescription drug coverage became tied to the issue of restructuring the whole Medicare program," says Jonathan Oberlander, author of The Political Life of Medicare and a health policy expert at the University of North Carolina. "And then it became a different kind of drug benefit."
This philosophical divide dominated the debate in Congress, pitting those with faith that the private market could do a better job against those who wanted to keep Medicare as a government program. And just as the Democratic landslide of 1964 ensured Medicare's passage the following year, so the ascendancy of Republicans in the White House and Congress in 2000 resulted in a law that gave private health insurance plans a much greater role in both the drug benefit and the program as a whole.
Why so much choice?
In designing the drug benefit, Congress offered large subsidies to insurers to encourage them to enter this new Medicare market. It will also subsidize employers that continue drug coverage for workers and retirees, as long as it's at least as good as Medicare's.
As a result, an unexpectedly large number of insurers have applied to provide drugs. "It's a kind of gold rush," says Oberlander. "A lot of them are looking to the future—this is a huge market now, but think where it's going to be 20 years from now."
It isn't yet known how many plan choices enrollees will have. Some may have only two, others scores, depending on where they live. Many consumer advocates fear that people may be paralyzed by indecision.
Yet heavy competition could benefit consumers if it forces down premiums and copayments, at least in the short term. An early indication of this, Medicare officials say, is that the national average for monthly premiums is now predicted to be $32.20—down $5 from previous forecasts—and some plans in urban areas will charge no premiums. Several experts predict there will be a shakeout over time. "My guess is that three or four years from now, there'll be only four or five big national plans [offering Medicare drug coverage]," Reischauer says. "Hundreds will come to the dance, but few will stay till the end."
Why is there a coverage gap?
Under the minimum level of drug coverage set by law, in 2006 each enrollee will pay a $250 deductible and 25 percent of the next $2,000 worth of drugs. Medicare will then pay nothing further until his or her total drug costs reach $5,100. At that point "catastrophic" coverage will kick in, and Medicare will pay 95 percent of all other costs to the end of the year. The $2,850 in the middle that must be paid out of pocket is the coverage gap, known as the "doughnut hole."
Not everyone will fall into the gap. Employers and state pharmacy assistance programs may give their enrollees extra coverage to narrow or fill in the hole. So will some Medicare drug plans, probably for a higher premium. And people on limited incomes who qualify for extra assistance will receive coverage throughout the year, as well as having Medicare pay most of their costs.
But why is there a coverage gap at all? In 2003 the $400 billion that Congress had budgeted for Medicare reform was nowhere near the amount needed to offer full drug coverage to all beneficiaries for 10 years.
With that limitation, "Congress' goal was mainly to protect two groups of people—those with the highest drug costs and those with the lowest incomes," says Vicki Gottlich, an analyst with the Center for Medicare Advocacy in Washington.
Unpopular though the gap may be, it was the only design that would allow enrollees a relatively low deductible and a 75 percent subsidy for their first slice of costs, Reischauer explains. "You can't do a voluntary program for $400 billion without having a gap in coverage," he says.
If it's voluntary, why is there a late penalty?
Nobody will be forced to sign up. But people who don't do so during the time they're first eligible (from Nov. 15, 2005, to May 15, 2006, in the case of current Medicare beneficiaries) will have to pay a late penalty if they change their minds later on. The penalty will be higher payments for all future premiums.
(There are exceptions. For example, people who don't sign up because they have comparable employer drug benefits will not incur the penalty if they later lose that coverage and switch to Medicare's.)
Medicare Part B has always carried a late penalty, too. "It's the insurance concept," explains Gottlich. "If there was no penalty, people who have no prescription drug costs now wouldn't enroll, so you'd have a program that covered only the sickest people, and it would be very expensive."
Over time, Reischauer says, most people coming into Medicare will see the value of the drug benefit "as peace of mind" and sign up for it as automatically as they now do for Part B. But at first, since this is new territory and requires choices beneficiaries have never had to make before, "the transition problem is substantial," he says.
Many people won't sign up immediately out of uncertainty, says Robert Blendon, a health policy analyst at Harvard University School of Public Health, citing surveys showing that at least one- third of older Americans don't yet know much about the benefit and many others are unsure whether they'll enroll.
"Are [the authorities] really going to be penalizing these people who are confused and not sure what to do?" he says. If so, "that's going to be the number one political issue" next year.
Ball faced a similar situation in 1965. "If they missed the deadline, they could still sign up, but it would cost them more for the rest of their lives," he says. "So we felt we had an obligation to do everything we could to reach them."
Did Ball, now 91 years old, expect to wait 40 years for drug coverage in Medicare? "I'm not a good prognosticator," he says with a laugh. "In 1965 I thought Medicare itself would be reformed into a national health insurance plan for everyone—by about 1970."
Additional Related Links
Listen to AARP's Prime Time Radio Discussion on Medicare
Limited-Income Medicare Beneficiaries Are Trading Up (July-August 2005)
Asset Testing and the New Medicare Law (July-August 2005)
Medicare Drug Benefit Preview: Do You Qualify for Extra Help in Paying for Rx Drugs? (May 2005)
State-by-State Guide to Pharmacy Assistance Programs
Overview of AARP's Prescription Drug Discount Card (AARP.org)
Understanding the Traditional Medicare Program (AARP.org)
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